Greece forms technocrat cabinet

'If austerity destroys Greece, it'll spread to rest of Europe'

Members of the newly appointed caretaker Greek government are sworn-in during a ceremony at the Presidential Palace in Athens on May 17. (Reuters)

A caretaker technocrat government took office in Greece on Thursday to organise the cash-strapped country's second elections in just six weeks after an inconclusive May 6 vote jolted the eurozone.

The team led by 67-year-old Panagiotis Pikrammenos, the head of Greece's top administrative court, is made up mainly of prominent university professors, a retired general and a diplomat.

The election left Greece in limbo, pushing the financial markets and euro down sharply, and the new poll on June 17 offers no guarantee of a viable government able to implement an EU-IMF bailout which has divided the country.

The European Union and the International Monetary Fund, which are all that stand between Greece and a disorderly debt default and exit from the eurozone, have warned that no new funds will be released if progress on pledged reforms and tough austerity measures falters.

Outgoing prime minister Lucas Papademos on Thursday warned that it would be "disastrous" for Greece to unilaterally reject the EU-IMF bailout but it could try for some adjustments in the terms in cooperation with its partners.

"Any modification ... must be pursued in a spirit of consensus and with the full agreement of European peers," Papademos said in an open letter.

"A unilateral rejection of the country's contractual obligations would be disastrous for Greece, leading unavoidably outside the euro and possibly outside the European Union.

"The decisions we take could seal Greece's course for decades," he added.

Papademos took over as head of a technocrat government in November to ratify the EU-IMF bailout, supported by the main socialist Pasok and conservative New Democracy parties which suffered badly in the May 6 voter backlash.

In the cabinet sworn in Thursday, George Zannias, formerly head of the state's council of economic advisors and a key negotiator in Greece's landmark debt rollover, was appointed finance minister.

Petros Molyviatis, an 83-year-old retired diplomat, returns to head the foreign ministry after a stint in 2004-2006, while Greece's former head of the army general staff Frangos Frangoulis has been named defence minister.

The caretaker administration was appointed after Greece's political parties failed to cobble together a coalition following the May 6 elections which saw a voter backlash against austerity and in which no clear victor emerged.

"The new battle begins," conservative New Democracy chief Antonis Samaras told party cadres. "It will determine whether Greece will remain in Europe, a Europe that is itself changing."

Many Greeks are in despair after two years of salary and pension cuts, which instead of bringing promised economic benefits haves left the country mired in recession for a fifth year, triggering strikes and sometimes violent protests.

Radical left-wing party Syriza, which is vehemently opposed to what it brands "barbaric" austerity measures and has threatened to tear up the bailout deal, is a favourite to win after coming second in the May 6 election.

Syriza's 37-year-old leader Alexis Tsipras on Wednesday accused the EU and Chancellor Angela Merkel of European paymaster Germany of "playing poker with European people's lives".

Tsipras told the BBC that if the "disease of austerity destroys Greece, it will spread to the rest of Europe".

The turmoil has raised fears among Greece's international creditors that structural reforms pledged in return for the latest 240-billion euro ($300 billion) bailout will be delayed or even scuppered.

"It is clear to all that our homeland is going through difficult times. We must safeguard its prestige and assure a smooth transition," Pikrammenos said Wednesday.

In a sign of the growing paralysis, the Greek agency overseeing state asset sales -- another condition for international funds -- on Wednesday suspended its operations until a fully fledged government is in place.

News that about 700 million euros ($890 million) was withdrawn from Greek banks on Monday has added to the jitters, with investors fearful a Greek euro exit would be chaotic for everyone.

British Prime Minister David Cameron is due Thursday to renew his call for eurozone leaders to take decisive action or face the break up of the single currency over the Greek debt crisis.

The latest twist in the Greek crisis comes as the focus switches to struggling Spain where the government is desperately trying to shore up a crippled banking system amid concerns it may need outside help to do so.

The eurozone debt crisis has so far claimed Greece, Ireland and Portugal but the fear is that Europe's current rescue mechanisms would not be able to cope with a Spanish bailout, especially if Italy were to be in trouble too.